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How
Does An Immediate Annuity Work?
A Single Premium
Immediate Annuity (SPIA) is purchased with a single payment, and begins generating income payments shortly after
purchase. It can be used for long-term retirement planning for
the future seniors who require a guaranteed retirement
income that cannot be
outlived. Their primary concern is to not run out of
income.
The
Immediate Annuity Can Be Used For Other Purposes
SPIAs can be issued with a specified income period. For
example, when you hear about someone winning Megamillions or PowerBall
and they have opted for payments over a 20 year period, it is an
immediate annuity providing the payments. In cases such as
these, the Lottery Commission has purchased the annuity.
Quite often, in large court settlements, the judge has the
option to specify that an annuity be purchased rather than have the
lump sum turned over to the aggrieved party, especially if that person
has no experience in handling a large sum of money.
The
Immediate Annuity and Retirement Income Portfolios
When
you speak with an investment counselor, you'll find they'll use a
common solution, which is a combination of mutual funds and
bonds. If you speak with insurance brokers, they'll recommend
the annuity. BenefitsLab believes there's a middle ground.
A
recent study by Milliman,
a trusted third-party actuarial firm, compared the probability of
meeting income goals with two portfolios: (1) an Equity/Bond
allocation and (2) an SPIA/Equity/Bond allocation. The results
were as follows:
|
Withdrawals
from
Mutual Funds Only |
|
Adding
SPIA to the Mix |
|
|
|
|
|
|
| CASE |
Probability
of
Meeting
Income Goal |
Equity/Bond
Allocation |
|
Probability
of
Meeting
Income Goal |
SPIA/Equity/Bond
Allocation |
|
|
|
|
|
|
| 1 |
69% |
85%/15% |
|
84% |
70%/16%/14% |
|
|
|
|
|
|
| 2 |
82% |
65%/35% |
|
97% |
60%/18%/22% |
|
|
|
|
|
|
| 3 |
78% |
65%/35% |
|
94% |
60%/20%/20% |
|
|
|
|
|
|
| In
addition, more funds were available to leave to their family. |
Our
Conclusion: The Immediate Annuity has a place in a Retirement
Portfolio.
The
following link is to the actual 22 Page Report. In our opinion,
all the "meat" is in the two page Executive Summary because most of the balance
is written in "actuarial-ese."
The
Immediate Annuity and Retirement Income Portfolios
Want More Info? ... Russ Swallow ... 508-831-0805
(or
use e-mail
address below)
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